AuthenTec Is the Real Deal

The fingerprint identification company is stamping out lots of growth.

The average computer user keeps about 25 passwords. If you're anywhere close to average, there's a good chance that some of yours reside on sticky notes on the side of your computer monitor. As identify theft and online security breaches grow increasingly common, AuthenTec (NASDAQ:AUTH) is pursuing a better way to keep digital information secure. But Wall Street is a bit skeptical; following the company's IPO yesterday, its shares plunged 9%.

AuthenTec develops chips that provide fingerprint identification for PCs and wireless devices from blue-chip clients such as Hewlett-Packard (NYSE:HPQ), Fujitsu, Lenovo, and Toshiba. While fingerprint technology is not new, AuthenTec's chips use a unique approach. Instead of reading only a person's skin surface, the company's TruePrint system reads the live layer below the skin's surface. The technology may sound scary, but it's far more accurate than conventional methods, and works well even in less-than-ideal environments.

AuthenTec has 33 issued U.S. patents on its technology -- the largest portfolio in its industry. That's a hefty competitive advantage against rivals such as Atrua, Validity Sensors, and Atmel (NASDAQ:ATML).

Thanks to those powerful patents, the company's having little trouble getting business. Last year, it posted a 72.9% increase in revenue, to $33.2 million. Alas, those sales translated to a $9.7 million net loss in 2006, but that deficit's understandable. Management is investing in sales, R&D, and other infrastructure to make sure it doesn't miss out on burgeoning growth possibilities.

According to a report from Frost and Sullivan, AuthenTec enjoys a massive market opportunity. The market for fingerprint sensors is expected to grow 50.6% annually, to $2 billion by 2013.

So far today, AuthenTec's stock has risen a couple of percentage points. IPOs do tend toward volatility, especially within the first couple months of the offering, as highfliers like Riverbed Technologies (NASDAQ:RVBD) and Aruba Networks (NASDAQ:ARUN) have previously proven. In AuthenTec's case, the company has the ingredients for a sustainable growth company. Foolish investors would do well to keep their fingers on this stock's pulse.